Short-Term Planning (MRP) - POMS

Prod2100 MRP / JIT 0

Short-term Planning

Material Requirements Planning (MRP) � How to get the right material in the right quantity at the right time? Manufacturing Resource Planning (MRP2) � How to start the right operation at the right shop at the right time? Just in Time (JIT) � How to avoid waste? 1. FRAMEWORK OF PLANNING DECISIONS...............................................................................1

2. MATERIAL REQUIREMENT PLANNING...................................................................................2

2.1 BASIC QUESTION .................................................................................................................................2 2.2 BILL OF MATERIAL (BOM)..................................................................................................................3 2.3 MATERIAL REQUIREMENT: WHAT ? .....................................................................................................4 2.4 MATERIAL REQUIREMENT: WHEN ?.....................................................................................................5 2.5 MRP PROGRAM ...................................................................................................................................9 2.6 MRP IN OPERATIONS .........................................................................................................................11 2.7 LOT SIZING TECHNIQUE.....................................................................................................................15

3. CAPACITY PLANNING.................................................................................................................18

3.1 CAPACITY PLANNING USING OVERALL FACTORS: CPOF...................................................................19 3.2 CAPACITY BILLS ................................................................................................................................20 3.3 RESOURCE PROFILES .........................................................................................................................21 3.4 CAPACITY REQUIREMENTS PLANNING...............................................................................................23 3.5 CAPACITY PLAN: SUMMARY..............................................................................................................24

4. MRP/CRP: CONCLUSION ............................................................................................................25

5. JUST IN TIME .................................................................................................................................26

5.1 PRINCIPLES ........................................................................................................................................26 5.2 COMPARISON: CONVENTIONAL - JIT.................................................................................................29 5.3 IMPLEMENTING JIT ...........................................................................................................................30

T.E. Vollmann, W.L. Berry and D.C. Whybark., Manufacturing Planning and Control Systems, Business One Irwin, 1992.


1. Framework of planning decisions Let us first remember where the MRP activities take place.

Corporate Strategic Planning

� Business

Forecasting �

Product and Market

Planning

⇐

Financial Planning

� Aggregate

Forecasting �

Aggregate Production Planning

⇐

Resource Planning

� Item

Forecasting �

Master Production Scheduling

⇐

Rough-cut Capacity Planning

� Spare

Forecasting �

Material Requirement

Planning

⇐

Capacity Requirement Planning

This sequence of operations can be divided into three sectors corresponding to the long term (more than 18 months), the medium term (from 1 or 2 months up to 18 months) and the short term (a few days up to a few months). For the long term, the strategic decisions are related to the market, the products and the facilities in general. The aggregate planning is based on an aggregate production target per time period (the month usually). It aims to select the right combination of work force and of inventory levels for the medium term (about 1 year). The MPS refers to the production objectives, per product and per time period (the week usually) for a term of about 1 to 3 months. The rough-cut capacity planning aims to verify that enough capacity is available in each shop. The MRP refers to the short term. It explodes the end product requirements specified in the MPS into requirements for components and raw material. It specifies when and how many of each component are required to reach the MPS. The CRP performs a detailed capacity analysis of each workcenter/shop. In this section, we focus on the MPS and on the MRP and on the related capacity evaluation tools.


2. Material Requirement Planning For clarity reasons, we will first analyze the relation between the MPS and the MRP and, afterwards, we will review the related capacity evaluation tools.

2.1 Basic Question In order to illustrate the kind of problems the MRP activity aims to solve, let us consider the example of the trays again. Here is the basic question tackled by an MRP.

To get 100 HTRAY’s in week 8 when shall I order components? Note that we mean here trays with labels both on the cups and on the tray itself. We call this new tray an HTRAY. To answer the basic question, we need to know of what an HTRAY is made. The review of the component can be exhaustive or recursive.

2.1.1. Modular Description Here is specified the complete list of all the components.

4

A

D

BC

1

E B

Below is a more recursive approach.

2.1.2 Single Level Coding: look at the last operation We only specify the components required for the last operations and work recursively. For one HTRAY we need :

4 1

Of course, all the components must be, in turn, described in terms of the next highest level components they use and so on.


2.2 Bill of Material (BOM) The last operation is assumed to be the assembly of four mounted cups on a labeled tray. We thus describe the final product as being made of 4 mounted cups and 1 labeled tray.

2.2.1 Complete tray Therefore we need to identify a mounted cup and a labeled tray. We named them G and F.

F G

H41

This structure specifies that 1 component H is obtained from 4 components F and 1 G. We then need to specify the mounted cup G and the labeled tray F.

2.2.2 Labeled tray This diagram means that a labeled tray, denoted F, is made of one E and of one B.

E B

FF

1 1

And similarly, for the mounted cup.

2.2.3 Mounted cup

A B C D

G

111 1

G

The specification of the product structure is usually referred to as the Bill of Material (BOM in short). A BOM is said to be modular if it specifies each component in terms of its next level components. The advantages of using a modular BOM are: clear structure and ease of update. These advantages are similar to writing a procedure for a piece of code in a program.


2.3 Material Requirement: what ? The bill of material allows you to explode the demand in final products into the different subassemblies and raw material. Here is the complete structure of the HTRAY.

E B A B C D

F G

H41

1 1 1 1 1 1

For example: for 100 H you need :

A B C D E F G H 400 500 400 400 100 100 400 100

This explosion is the first feature of an MRP system. It plans the requirements in material (MRP stands for material requirement planning). Note here the difference between dependent and independent demand. The demand for end products, like the HTRAYs, is driven by the market. This demand is independent. The demand for components or raw material depends on the demand for final products. This demand is dependent.

H Final Product Independent demand F, G Component Dependent demand A, B, C, D, E Raw Material Dependent demand


2.4 Material Requirement: when ? The explosion of the final product demand through the BOM tells how many components are needed. It does not tell you when they are needed. In order to know that, timing information must be introduced.

When do you need the components ? This timing information tells how much time is required by each operation. This information is kept in the Inventory Record File also called Item Master File which namely specifies the lead time for each component.

Structure chart with lead times Here we decide to represent these lead times on the product structure chart.

E B A B C D

F G

H

3 1 2 1 1 1

21

1

1 1 1 1 1 1

41

Assuming the time unit is the week, this chart has the following meaning.

Example: 3 weeks to get E, that is between ordering E and receiving E; 2 weeks to produce G, that is between the moment A, B, C and D are available and G is assembled.

Practically, the Inventory Records File (Item Master File) contains a record for each component.

Now we can raise questions with "when".

Here are examples. If you want to produce 100 HTRAY’s in week 8,

! Demand(product H, week 8) = 100 ? When and how many straws (D) to order ? You can raise the same question for the labels (B). The questions can get more difficult. When and how many straws are needed for selling 100 HTRAY’s in week 8 if you already have 200 mounted cups and 50 labeled trays.

Part A, ... Lead time = 2 weeks ...

Part B, ... Lead time = 1 week ...


MRP: Simulation The following time table allows the answers to be computed in a more systematic way.

Week 1 2 3 4 5 6 7 8

H Requirement 400 Order

G Requirement Order

F Requirement Order

E Requirement Order

D Requirement Order

C Requirement Order

B Requirement Order

A Requirement Order By proceeding backward, it is possible to determine exactly when and how many units are needed to satisfy the demand for the final products. Here are the results.

To sell 100 HTRAY’s in week 8: you must order 400 units of C in week 4.

Order what: A B B C D E F G How many: 400 400 100 400 400 100 100 400 When: 3 4 5 4 4 3 6 5

Note that "to order" components F and G simply means to launch a production order. For the raw material, it means to open a purchase order. This computation is the heart of an MRP system. It fulfills the goal of the MRP: "get the right material at the right time" or "order exactly what you need as late as possible".

"Get the right material at the right time" Since this computation is repetitive, it is better performed by a computer. Note that this computation does not incorporate the existing inventories or the foreseen shipments. A more complete structure is therefore needed.


MRP Record The backward computation performed during the MRP must also take into account possible existing inventories and possible scheduled receipts.

Fields of an MRP record One such record exists for each part, component or finished product. Here is one.

Name: Labels (B); Part Number: Prod-2100; Supplier: XYZ Lead time: 1 week; Lot size: lot for lot; Safety time = 0; Safety stock = 0;

It contains first intrinsic information relative to the part itself. This information is static. The second part is dynamic. It sketches the inventory evolution over time.

Period 1 2 3 4 5 6 7 8 Gross requirement Scheduled receipts On hand | Planned order release

Here are the meanings of these fields.

Time bucket / Period / Horizon The time bucket is the unit of time in use. One week is typical. The horizon is how much in the future one is looking, how many time buckets or periods we consider. By definition, we are at the beginning of period 1.

Gross Requirement This is the firm or forecast demand for the corresponding period. It is time-phased.

Scheduled Receipts These are parts which we are guaranteed to receive at the beginning of the corresponding period.

On-hand This is the inventory at the end of the corresponding period. It should remain positive.

Planned Order Release Here are the orders which are planned to be launched to prevent the inventory from becoming negative. These orders are not yet placed. They are planned to be placed !


MRP record Here is a small exercise. Try to play the role of the MRP program by filling the records.

Name: HTRAYs; Part Nr: Prod-2196; Lead time: 1 week; Lot size: lot for lot; Safety time = 0; Safety stock = 0;

1 2 3 4 5 6 7 8 Gross Requirement 20 20 40 80 0 50 10 0 Scheduled Receipts 100 On hand | 60 Planned Order Release

Name: Mounted Cups(G); Part Nr: Prod-2195; Lead time: 2 week; Lot size: 160; Safety time = 0; Safety stock = 20;

1 2 3 4 5 6 7 8 Gross Requirement Scheduled Receipts 70 On hand | 20 Planned Order Release

Lead time This is the time required for an order to be completed. It is the time between the moment an order is placed and the the moment the products are delivered. It is made of 4 main parts.

Move - Queue - Setup - Run Note that queuing time depends on the workload and on the schedule !

Safety time This is a time which is added to the lead time for safety reasons, typically when the lead time is not very reliable.

Lot size This is the technique used for deciding how much to order. The "lot for lot" technique means that we order exactly what is needed. Other methods are reviewed at the end of the chapter.

Safety stock By principle, an order is launched to prevent the inventory from becoming negative. With a safety stock, an order is launched as soon as the inventory would drop below this safety stock level. This security is often needed when scrap is common.


2.5 MRP program Here is a summary of the MRP system.

! Demand (aggregate plan, forecast, firm orders) ! When and how many FG must be delivered (MPS) ! Product Composition (BOM) ! Timing aspects (Inventory Record File) ! Scheduled receipts (Inventory Record File) ! On-hand inventory (Inventory Record File)

�� ? When to order the raw materials and how much ? ? When to launch production order and for how much ? The MRP program computes, on the basis of all these data (symbolized by !), the latest time to order the right quantity of the right product.

1. Objective: order the right quantity of the right product as late as possible.

Here below we review the different data and results of the MRP program.

2a. Demand Three main sources exist for the demand of final products.

• firm orders from known customers • forecast demand from unknown customers • make-to-stock orders in anticipation of future

forecasted demand increase (aggregate planning) This demand is finally translated into a master production schedule (MPS).

2b. Master Production Schedule (MPS) • due dates and due quantities for each FG.

Example: Week 5 6 7 8 H 100 100 200 200 h 150 250 100 200

These requirements are then injected in the MRP calculator as gross requirements.


3a. Bill of Material (BOM)

H

E

F1

1B1

B C

G4

A1 1 1

D1

h

E

1

A D

g4

1 1

This BOM defines the product structure.

3b. Inventory Record File (IRF) • general information:

part number, description, supplier, lead time, safety stock, safety time, lot size,...

• the MRP records

Period (week) 1 2 3 4 5 6 7 8 Gross requirement Scheduled receipts On-hand Planned Order release

4. MRP Program 1. Start with the highest level (finished products) 2. Update the corresponding MRP record (in IRF) 3. Link (through BOM) to the next level

The order in which the records are processed is important in order to avoid processing the same record several times. This is why we recommend using the low level coding.

Note: Use low level coding This technique requires that all the BOM be drawn in parallel. If a same component appears in different BOM, then it is lowered to its lowest position. After this manipulation, any component appears at a single level only. The components are then processed by the MRP program in decreasing level order.

Reports: planned orders, order release notices, change in due dates, cancellations, inventory status data

These are the kind of reports that are generated by the MRP program.


2.6 MRP in operations The planner is responsible for the following actions.

•••• Situation at the start of the week:

Product X (lead time = 3; lot size = 20) 1 2 3 4 5 6

Gross Requirement 15 20 20 10 Scheduled Receipts 20 On hand | 27 12 12 12 12 2 2 Planned Order Rel. 20

The planned order release in bucket one is called the action bucket.

•••• Order Release: (check availability - pick - update) Before releasing the order, the planner must check the availability of the needed material, allocate the material to this order, pick it from the stores and update the records.

1 2 3 4 5 6 Gross Requirement 15 20 20 10 Scheduled Receipts 20 20 On hand | 27 12 12 12 12 2 2 Planned Order Rel.

•••• Timing for gross requirement changed: 15 units for week 2 are shifted to week 1. 10 units for week 4 are shifted to week 6.

1 2 3 4 5 6 Gross Requirement 30 5 10 10 10 Scheduled Receipts 20 20 On hand | 27 -3 12 12 22 12 2 Planned Order Rel.

•••• Possible Actions: a.1) check whether the open order for period 2 can be rescheduled to period 1 (expedite) a.2) check whether 3 units can be rescheduled (expedite) a.3) check the consequences of these 3 missing units(pegging) b) delay open order for period 4 to period 5 (delay)


Update Frequency Unfortunately, the MRP calculations always become wrong because something happens.

End product (lead time = 3; lot size = 25) 1 2 3 4 5 6 7 8

Gross Requirement 10 2 10 13 20 4 Scheduled Receipts 23 On hand | 14 4 2 25 15 2 2 7 3 Planned Order Rel. 25 The production unit in charge of this end product could inform you that 3 units got scrapped among the 23 scheduled units. If you update the records you obtain the following results.

Change in scheduled receipt: 20 instead of 23 in period 3

1 2 3 4 5 6 7 8 Gross Requirement 10 2 10 13 20 4 Scheduled Receipts 20 On hand | 14 4 2 22 12 24 24 4 0 Planned Order Rel. 25 The question is should you rerun the MRP program again immediately or should you wait until the next week ?

Question : When to update the data ? The first solution is to run the MRP calculation once a week only. In this case all the transactions are entered before the next run only.

Solution 1: Regenerative system or periodic update for example: weekly computer run (+) stable (-) never up to date

The other solution is to check for all the consequences of this change immediately. However, you then need a system able to compute what has been modified only. This is called a net change system. The drawback is some nervousness of the system.

Solution 2: Net Change Systems for example: nightly run of daily transactions (-) nervous (+) up-to-date


Nervousness Good news could also perturb the whole plan. The POQ (periodic order quantity) lot sizing technique specifies that when some quantity should be ordered, the order size is set to what is needed to cover the next POQ weeks.

Product A (lead time = 2; lot size: POQ = 5) 1 2 3 4 5 6 7 8

Gross Requirement 2 24 3 5 1 3 4 50 Scheduled Receipts On hand | 28 26 2 13 8 7 4 0 0 Planned Order Rel. 14 50 Component B (lead time = 4; lot size: POQ = 5)

1 2 3 4 5 6 7 8 Gross Requirement 14 50 Scheduled Receipts 14 On hand | 2 2 2 2 2 2 0 0 0 Planned Order Rel. 48

Assume that the demand for period 2 decreased by 1 unit

Product A (lead time = 2; lot size: POQ = 5) 1 2 3 4 5 6 7 8

Gross Requirement 2 23 3 5 1 3 4 50 Scheduled Receipts On hand | 28 26 3 0 58 57 54 50 0 Planned Order Rel. 63 Component B (lead time = 4; lot size: POQ = 5)

1 2 3 4 5 6 7 8 Gross Requirement 63 Scheduled Receipts 14 On hand | 2 16 -47 Planned Order Rel.


Exercise solutions Here is the solution of the MRP exercise proposed earlier (on page 6).

Week 1 2 3 4 5 6 7 8

H Requirement 100 Order 100

G Requirement 400 Order 400

F Requirement 100 Order 100

E Requirement 100 Order 100

D Requirement 400 Order 400

C Requirement 400 Order 400

B Requirement 400 100 Order 400 100

A Requirement 400 Order 400 and here is the solution for the MRP records on page 8.

HTRAYs (LT=1; LFL) 1 2 3 4 5 6 7 8 Gross Requirement 20 20 40 80 0 50 10 0 Scheduled Receipts 100 On hand | 60 40 120 80 0 0 0 0 0 Planned Order Release 50 10

G-cups (LT=2, LS=160; SS=20)

1 2 3 4 5 6 7 8

Gross Requirement 200 40 Scheduled Receipts 70 On hand | 20 20 90 90 90 50 170 170 170 Planned Order Release 160 160


2.7 Lot Sizing Technique The MRP program determines when the different components should be ordered. However, for cost reasons, it could be useful to group several consecutive small orders into a larger one. This problem is called the lot sizing problem. We will here review different approaches to tackle this problem.

Example: HTRAYs 1 2 3 4 5 6 7 8 ... Planned Order Release 80 40 100 40 if you order as planned, 4 order costs (setup costs) will be due.

Order Cost 100 100 100 100

Idea: save some order costs by grouping orders (and building inventory)

Let us first illustrate the problem by assuming that each time an order must be placed, a fixed large quantity Q is ordered. Later in this course, when the notion of EOQ will be introduced, Q can be chosen as the economic order quantity.

2.9.1 Fixed lot size Q Assume we have the feeling that the quantity 130 is a good choice. Then each time we need to order, the quantity Q = 130 will be ordered.

Q = 130 Here is what we get.

HTRAYs 1 2 3 4 5 6 7 8 ... Planned Order Release (Lot For Lot)

80 40 100 40

Planned Order Release Lot size = 200

130 0 130

Let us examine the production P(1) in the first period. We observe that:

Observation : P1 = 130 is suboptimal P(1) can be decomposed as: 130 = 80 + 40 + 10. This means that P(1) will cover the demand for period 1 and 2 and partially for period 3. The suboptimality of P(1) results from the fact that the 10 units foreseen for period 3 are of no help: they will induce inventory costs and do not help reducing the number of orders. P(1) should either be reduced by 10 units or be increased by 90 units to meet the demand in period 3.

Reasonable P1 values: 80, 80+40, 80+40+100 or 80+40+100+40


2.9.2 Wagner-Whitin's Algorithm Here we formalize the problem as a minimization problem.

Problem formulation The data is the demand in each period, the holding cost H and the order cost O.

! Di the demand for week i ? Pi the production in week i ? Ii the inventory in week i

The objective is to minimize the total cost: holding cost and order cost.

Minimize: H I O zii

ii

� �+

The variable is the production in each period. From this production we can derive the number of launched orders and the inventory levels.

Where zif P

if Pii

i=

>=

��

1 00 0

Such that: I I P D

I Pi i i i

i i

+ = + −≥ ≥

��

10 0,

We know by the intuitive reasoning above that we should only consider production batches that exactly cover an exact number of periods. For example:

Consider only: Pi i kk

rD= +

=�

0

In other words, the production plan is immediately determined by the periods in which production will take place. Once the z(i) are fixed, the complete plan can be derived.

Number of solutions: 2(n-1) denoted by ( , , ... , )z z zn1 2 The solution to this problem can be determined by dynamic programming. Here it is.

HTRAYs 1 2 3 4 5 6 7 8 ... Planned Order Release (LFL)

80 40 100 40

Planned Order Release Wagner-Whitin

120 0 140 0

Order Cost (100/order) 100 0 100 0 Holding Cost (1/week) 40 40 total = 280

criticism: hard to solve the horizon is never finite in reality


2.9.3 Heuristics

a. Silver-Meal Idea: Compute the average cost per period for the possible strategies. Take the minimum.

Compute : C(1) = O

C(2) = (O+ HD2) /2 C(3) = (O+ HD2 + 2HD3 ) /3 ...

C(r) = (O+ HD2 + ... +(r-1) HDr ) /r

Select C(r) if C(r-1) > C(r) < C(r+1)

HTRAYs 1 2 3 4 5 6 7 8 ... Planned Order Release (LFL)

80 40 100 40

C(r), r=1,2,... 100 70 113 C(r), r=1,2,... 100 70 Planned Order Release Silver Meal

120 0 140

b. POQ

Principle : produce the quantity needed for a given number of next periods. For example: POQ = 2

Lot size: Summary

goal reduce cost by using inventories problem local view Lot sizing techniques aim to reduce the incidence of major order costs. The problem of reducing these costs (that is really tackled by the just-in-time technique) is not considered here.


3. Capacity Planning

Plans and Capacity checks Production plans are made at different scales and for different terms. Here is the basic list.

Plan Term Capacity Evaluation Aggregate plan

[12-24] (months)

• Graphical method • Linear programming • LDR, MMB

Master Production Plan

[1-6] (months)

Rough-Cut Capacity plan • Capacity Planning using

Overall Factors (CPOF) • Capacity bills • Resource profiles

Material Requirement Plan

[1-6] (months)

Capacity Requirement Planning (CRP)

The shorter the terms are, the more detailed the production plans and the more precise the capacity evaluations. The aggregate plan is expressed in terms of an aggregated production unit; the MPS gives the time-phased demand per product; the MRP goes to the component level. For each plan, a capacity check is needed.

What capacity is needed to meet the production plan ? For the aggregate plan, we reviewed different methods (resource planning) which all aim to find the required capacity in facilities, equipment and manpower. From the aggregate planning, a MPS was built. And from the MPS, an MRP was derived. We have not yet considered the capacity aspects of these plans. For the MPS, the Rough-cut capacity plans will provide estimates of the load of the different workcenters over the corresponding time horizon. For the MRP, the capacity requirement plan will provide such an estimate. We will review 4 techniques successively:

Capacity Planning using Overall Factors (CPOF) Capacity bills Resource profiles Capacity Requirement Planning (CRP)

These techniques are more and more accurate but require more and more information.


3.1 Capacity Planning using Overall Factors: CPOF Let us assume, we have only two end products H and h with the following demand.

MPS Period End Product 5 6 7 8 H 100 100 200 200 600 h 150 250 100 200 700 We consider here only 4 time periods of, let us say, 1 day. In a real system, the number of final products will be much larger and the horizon will extend from the next period to a much further time (usually between 1 and 3 months). In this example we selected the “day” as time bucket. In some real systems, the week or the hour could be more appropriate.

Basic Question: What is the capacity required at the different workcenters and when?

We consider here only three workcenters (or shops). They are given in the table below. For the computation of the required capacity, the CPOF method needs the average relative workload of the different centers (the average load of last year, for example).

Workcenter relative load Cup Assembly 0.55 Tray Label 0.10 Tray Assembly 0.35 The CPOF method then needs the total amount of resource necessary for producing one unit of each end products. Here we assume this unit to be the working hour.

total capacity per product H 0.15 ( hours/unit ) h 0.10 ( hours/unit )

This means that the production of 1 H requires all together 0.15 hour, that is 9 minutes. The CPOF then estimates the future load of the workcenter by splitting the total capacity required between the different workcenters using the average workloads. The total capacity is derived from the stated demand and the capacity required per product.

CPOF Period 5 6 7 8

Total capacity 30 40 40 50 160

Cup Assembly 16.5 22 22 27.5 88 Tray Label 3 4 4 5 16

Tray Assembly 10.5 14 14 17.5 56 The method implicitly assume that for every production hour, 55 % are spent at the Cup Assembly, 35 % at the Tray Assembly and 10 % at the Tray Label.


3.2 Capacity Bills Compared to CPOF, capacity bills take into account the detailed need of the different products at the different workcenters. These needs can be specified as follows.

Routing & Standard times

Lot Size

Setup time

setup / unit

proc'g / unit

total (hr)

H Tray Assembly 10 0.1 0.01 0.03 0.04 h Tray Assembly 10 0.1 0.01 0.04 0.05 F Tray Label 10 0.1 0.01 0.01 0.02 G Cup Assembly 160 0.4 0.0025 0.02 0.0225 g Cup Assembly 80 0.2 0.0025 0.01 0.0125 For each workcenter, the setup time is distributed on each unit of the lot size. The capacity bills can then be computed.

Capacity Bill H h H h CPOF Cup Assembly (4) 0.09 0.05 0.60 0.50 0.55 Tray Label 0.02 0.00 0.13 0.00 0.10 Tray Assembly 0.04 0.05 0.27 0.50 0.35

total (hr/unit) 0.15 0.10 Relative load Note that the production of 1 HTRAY requires 4 cups. The total is of course identical to what we already knew: the production of one H requires 0.15 hour. Look at the relative load of the different workcenters. When H is in production, the cup assembly requires 60% of the total work. When h is in production, the cup assembly requires only 50% of the total work. The CPOF method assumes a 55% average. This average is only correct when the same amount of H and h are manufactured. This means that the CPOF method is correct as long as the product mix remains the same. Knowing the capacity bill of each product, the capacity needed at each workcenter can now be more precisely estimated.

Capacity requirements Using Capacity Bills with CB Period

5 6 7 8 Cup Assembly 16.50 21.50 23.00 28.00 89 Tray Label 2.00 2.00 4.00 4.00 12 Tray Assembly 11.50 16.50 13.00 18.00 59

check 30.00 40.00 40.00 50.00 160 We can observe some differences with the results of the CPOF. As an exercise, try to determine which assumptions have been made in this calculation.


3.3 Resource Profiles The idea here is to take the timing of the different workcenters into account. Let us take an example. The production of 100 H units in period 5 will lead to a workload of the workshops. However, this load will not be in period 5 but earlier, maybe in period 4 or 3 depending on the lead times. We assume here a lead time of 1 period (day) for each operation except for the assembly of the G cups which requires 2 days.

Explode the demand for 1 end product in period i

Period i-3 i-2 i-1 i H 1 unit

Cup Assembly (G) 0.09 hr. Tray Label (F) 0.02 hr. Tray Assembly (H) 0.04 hr.

h 1 unit Cup Assembly (g) 0.05 hr. Tray Assembly (h) 0.05 hr.

Explode the demand for end products in period 7

Period 4 5 6 7 H 200 units

Cup Assembly (G) 18 hr. Tray Label (F) 4 hr. Tray Assembly (H) 8 hr.

h 100 units Cup Assembly (g) 5 hr. Tray Assembly (h) 5 hr.


Resource Profiles This last calculation can be repeated for all the demands.

Decomposing the demand for end products This leads to the following table. Compared to the planning obtained with the capacity bills, the overall load of each workcenter remains the same. For example, with both plans, 89 hours are required for the Cup Assembly workcenter. However, the timing of these requirements changed.

Period 2 3 4 5 6 7 8 tot. H 100 100 200 200 Cup Assembly 9 9 18 18 0 0 0 54 Tray Label 0 2 2 4 4 0 0 12 Tray Assembly 0 0 4 4 8 8 0 24 total 9 11 24 26 12 8 0 90 h 150 250 100 200 Cup Assembly 0 7.5 12.5 5 10 0 0 35 Tray Assembly 0 0 7.5 12.5 5 10 0 35 total 0 7.5 20 17.5 15 10 0 70 H +h Cup Assembly 9 16.5 30.5 23 10 0 0 89 Tray Label 0 2 2 4 4 0 0 12 Tray Assembly 0 0 11.5 16.5 13 18 0 59 total 9 18.5 44 43.5 27 18 0 160 In practice, we do not keep negative columns since this corresponds to work which should have been done already. If it has not yet been done, it is past due. In this case, this capacity is still required from the workcenters.

Negative columns: discard or mark as "Past Due" Compared to the previous methods (CPOF and CB) this method incorporates the lead time dimensions. This additional data could be useful or not, depending on the business and on the time horizon.


3.4 Capacity Requirements Planning The CRP is mainly based on the MRP. If we have implemented an MRP system, it becomes very easy to estimate the capacity we need.

Example Here is an example. Let us consider the following MPS.

MPS 1 2 3 4 5 6 7 8 HTRAYs 100 100 200 200 100 100 200 200 h-trays 150 250 100 200 150 250 100 200 If we perform a classical MRP calculation based on this MPS, we obtain the following records for H and h.

HTRAYs (LT=1; LS=200; SS=20)

1 2 3 4 5 6 7 8

Gross Requirement 100 100 200 200 100 100 200 200 Scheduled Receipts 200 On hand | 200 300 200 200 200 100 200 200 200 Planned Order Release 200 200 200 200 200

h-trays (LT=1; LS=150; SS=20)

1 2 3 4 5 6 7 8

Gross Requirement 150 250 100 200 150 250 100 200 Scheduled Receipts 150 On hand | 150 150 50 100 50 50 100 150 100 Planned Order Release 150 150 150 150 300 150 150 We could proceed with the different components of the H and h products. However, at this point already, we can perform a capacity calculation. Indeed, let us consider the “planned order release” line of these records. They specify production orders for the tray assembly shop or workcenter. For example, in period 2, this workcenter will have to assemble 200 HTRAY’s and 150 h trays. If each assembly requires 0.04 and 0.05 hours/unit, respectively, then (200 * 0.04 + 150 * 0.05 =) 15.5 hours of work are required at the tray assembly workcenter in period 2.

Period 2: 17.5 hrs of work needed at “tray assembly” We could then check whether there is enough capacity at each workcenter in each of the time periods. If we want to determine the capacity required at the “cup assembly” shop, we need first to process the MRP records related to this shop, that is those of G and g.

Similarities with previous methods Let's now try to compare CRP with the previous methods. As the previous methods, it starts with the MPS. Then, as the CB, it uses the detailed routing of the products in the plant. This routing is represented here by the BOM and the operations related to this BOM. As for the RP, CRP uses the exact operation lead times. On the other hand, here are all the aspects that distinguish CRP from the other methods.


Differences with previous methods

1. uses the time-phased information used in the MRP (actual lot size, lead times);

2. nets the demand taking inventory (for finished goods and WIP) into account;

3. takes into account the status of all open orders (only exact remaining work is considered);

4. takes into account the extra capacity requirements (demand for service parts, reactions to scrap and inventory errors).

For all these reasons, the CRP reasons is even more accurate than the previous methods. However, it requires also more static and dynamic data. These data are in practice the same as those required for the MRP. This is the reason why CRP is only used where an MRP is used. Many MRP software packages incorporate the CRP calculations.

3.5 Capacity plan: Summary

Choosing the measure of Capacity The problem here is to determine which unit to use for capacity planning: the man-hour, the machine hour, ...? An answer consists in determining the resource(s) that are key and in short supply. Then select the most relevant capacity unit.

Estimating the available capacity Practical capacity is often very different from theoretical capacity. Furthermore, there is the fundamental question of keeping some reserve capacity for flexibility, for guarantee, for additional businesses, ... .

Choosing a specific technique Here the compromise is between difficulty of getting the data and accuracy. CPOF is easy and quick. But it can be wrong if the product mix does change. CRP is very precise but you first need an MRP system.

Using the Capacity Plan The obvious goal is to look for capacity excesses and shortages. There are different ways of dealing with capacity shortages.

• delay / anticipate production orders • add capacity • modify the MPS

Modifying the due dates for the production or purchase orders is not an easy task. This is the purpose of MRPII software. Basically, these softwares perform a MRP calculation, then a CRP calculation and finally feed back into the MRP or the MPS. They iterate until a feasible solution has been found.


4. MRP/CRP: conclusion Here we try to take some distance from the MRP/CRP and to draw some first conclusions. First, we summarize each of the main points of this section.

MRP Goal: order the right material in the right

quantity at the right time Technique: take the MPS and explode it.

Lot Sizing Goal: avoid setups; spare order costs; Technique: minimize the order and inventory costs

Capacity Planning Goal: estimate the capacity required in each shop

at each time period Technique: CPOF, CB, RP, CRP

Let us try to understand the global goal of all these techniques.

Conclusion:

(+) Everything is under control Every operation is clearly defined; The “bad sides” are mastered;

(-) Ruled by a big administration Large amounts of paper work Lack of flexibility Acceptance of “bad sides”

With “bad sides”, we mean the following aspects of a production system.

“bad sides”: setup, lead times, uncertainty, failures, ... The Just-in-time technique is often seen as a tool to tackle the drawbacks of the MRP system. The principle of JIT could be seen as “try to avoid a problem” as opposed to the traditional approach which “tries to reduce the consequences of a problem”.


5. Just in Time It is often believed that JIT can only be applied to Japanese companies. Here is an example of performances of an American plant manufacturing TV sets. The plant was initially operated by an American company. The management was, let us say, classical. Then, the plant was bought by a Japanese company which introduced the concept of just-in-time. The performances below were reached 3 years after the plant has been bought.

QUASAR PLANT Motorola Matsushita Direct employees 1000 1000 Indirect employees 600 300 Daily production 1000 2000 Repairs 130% 6% Warranty costs $16 $2 Here we describe the JIT management principles which led to such performance.

5.1 Principles Here are the two main principles:

�� eliminate waste �� respect for people

These two statements should not be understood in a narrow sense but in the broadest possible sense. What is waste ? A broad answer is: "all that which is not necessary". Is it really necessary to manufacture the products before they are ordered? Is all the overhead really necessary ? Respect for people is much more than giving them a decent job, decent working conditions and a decent salary. It also assumes you trust them, you make them responsible and you give them the means for assuming this responsibility. These principles, when applied to the different areas of production management, lead to different systems, techniques or attitudes. They are reviewed systematically below. The following table lists the main performance they aim to improve.

Elimination of waste Flow time WIP

setup uncer-tainty

Group technology x x Jidoka / quality x Just-in-time production x Kanban control x Level schedule x Minimized setup times x


Group Technology The idea is to group the different operations required by a product into a cell. By grouping the operations, the aim is the reduction of transfer and waiting times. In order to compare the job-shop organization (also called MRP) with JIT, let us consider a company which manufactures 3 products: ABCDE, abce and αβδ.

Example of a job-shop organization: In a job-shop organization, the plant could be organized in 5 different workcenters, each being responsible for a family or type of operations. For example, the workcenter A would be responsible for the operations A, a and α, which are all similar. The workcenter B would be responsible for the b-type operations and so on.

Work center A

Work center B

Work center C

Work center D

Work center E

A B C D E a b c e α β δ

The idea of the group technology is to re-orient the job-shop organization towards the line organization. Ideally, we would only have production lines. However, this could be financially inefficient because all the machines have to be duplicated. The idea is then to go as far as possible. If some machine in some workcenter is used for a single product, then there is no reason to keep the machine in this shop. This machine could be immediately dedicated to the line for that product.

Example of a JIT's organization: A B C D E a b c e α β δ

In the above examples, the plant has been reorganized in 4 cells. Two cells remain classical workcenters (D and E). The first cell becomes now responsible for the first three operations for the products ABCDE and abce, that is ABC and abc. Another cell performs the operations α and β for the product αβδ. By doing so, we tend (but we do not really get it) towards a line organization and we get all the advantages of this kind of organization.

Jidoka / quality at the source Jidoka could be translated as "stop if anything wrong happens". The idea is that we should never go ahead with something wrong. All what we do should be perfect, otherwise we should simply restart. It also means we do not want to spend time and money checking afterwards. The same principle applies to the suppliers.


Just-in-time production A JIT production plant would be as follows. Everybody is busy working on one part. No inventory stands anywhere. When a worker has finished his job, he gives it to the next worker who sits beside him and who just got ready to accept it. The characteristics are thus: minimum lead time, no WIP, no queue and no quality problems.

Kanban control This is a practical coordination means which avoids paper work and keeps the WIP low and under control. The principle is that every part should be accompanied by a label (the kanban). By controlling the number of labels, we control the WIP of the system. The goal is of course to minimize the WIP while keeping nobody starved.

Level schedule. Try to manufacture the complete product mix everyday. This, of course, requires short setup times. However, it makes it possible to change the mix according to the demand very easily. Furthermore, the time before a given product is manufactured is the shortest possible.

Minimized setup times Using a level schedule when the setups are large and costly does not make sense. The reduction of the setup is therefore a condition for the whole system to work.

Respect for people Lifetime employment Attitude towards worker Quality circles

Lifetime employment If we require the full collaboration of your worker, you must first guarantee him his job. Do you think your worker will help you in the process of replacing him by a robot ? Even if it is beneficial for the company.

Attitude towards worker The main idea is that a worker is not only paid for the work he brings but also for his ideas for improving the system, the organization. The clearest way to show respect for him is to manage by goals and not by means. For example, do not control his working time but his production. However, before getting any goal, the worker should be able to manage the goal. In other words, he should be given the necessary information and training.

Quality circles Quality circles are groups of workers who meet to deal with quality problems. They are in charge of solving the problem (not finding the guilty man). Again, this requires delegation, information and training.


5.2 Comparison: Conventional - JIT Here is a short list which shows how main issues are dealt with under conventional wisdom and with JIT state of mind.

Issue Conventional JIT Quality vs. cost

least cost with acceptable quality

Top consistent quality (0 defects)

Inventories large inventory ←discount ←economy of scale ←safety stock

low inventories "continuous flow"

Flexibility long lead time (minimized)

short lead times; customer-service driven

Transport least cost with acceptable service

totally reliable

number of suppliers / carriers

many: avoid dependency

few: long-term open relationships

vendor / carrier negotiations

tough "adversarial" negotiations

joint-venture "partnerships"

vendor / carrier communicat.

many secrets sharing information

General cost-driven business customer-service driven business

This list has been published by G.A. Isaac III, "Creating a competitive advantage through implementing just-in-time logistics strategies", Chapter 7 in M. Christopher (Edt), "Logistics, The Strategic Issues", Chapman&Hall, 1992.


5.3 Implementing JIT Here is a small sketch of what is needed to transform a classical job-shop in a JIT organization. All these steps have rational explanations.

1. Design flow process • link operations • balance workstation capacities • improve the layout for flow • emphasize preventive maintenance • reduce lot size • reduce setup

2. Total Quality Control • worker responsibility • measure

3. Stabilize Schedule • level schedule • underutilize capacity • frozen windows

4. Kanban pull • demand pull

5. Work with vendors • reduce lead times • frequent deliveries • quality expectation

6. Reduce inventory 7. Improve product design

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Short-Term Planning (MRP) - POMS